Kellogg's and General Mills are two of the dominant breakfast cereal manufactures in the U.S. Each firm can either sign or not sign an exclusive contract with an Olympian gold-medal athlete to appear on the cover of a cereal box. If both companies sign an athlete, they will each make $5 million in economic profit. If only firm signs, they earn $8 million in economic profit and the other firm incurs an economic loss of $1 million. If neither firm signs, they break even. Which of the following pairs of payoffs would NOT appear together in a square of the payoff matrix?
A) $5 million; $5 million
B) $0 million; $0 million
C) $8 million; $5 million
D) -$1 million; $8 million

Question

Quizplus · Accepted Answer

If one firm signs an athlete, they earn $8 million while the other incurs a loss of $1 million, so $8 million and $5 million cannot appear together.

Kellogg's and General Mills Are Two of the Dominant Breakfast